KQ’s State takeover, delisting Bill tabled

A Bill that will guide the sale of Kenya Airways (KQ) #ticker:KQ to the State was tabled in Parliament on Thursday, setting the stage for the buyout of minority shareholders at a premium and converting shares held by banks into Treasury bonds.

MPs will now start debate on The National Aviation Management Bill 2020 as the National Assembly seeks to have the government take back full control of the national carrier by October.

The loss-making airline, which is 48.9 percent government-owned and 7.8 percent held by Air France-KLM, was privatised 24 years ago but sank into debt and losses in 2014.

“We are ready to complete the transactions once Parliament passes the Bill,” Treasury Secretary Ukur Yatani told the Business Daily in an interview.

“A lot of work has been done in the background including striking an agreement with KLM and talks are advanced with banks on conversion of their equity to bonds.”

Air-France KLM, which had the option of selling its stake to the government and staying on as a technical partner for the airline, has opted to exit.

Kenya has reached an agreement with Air-France KLM on the offer price, which will be a premium on the carrier’s prevailing trading price at the Nairobi bourse. The same KLM offer price will be used to acquire the minority shareholders, who hold about 2.8 percent of the shares currently valued at Sh397 million.

“We have already developed a formula for valuing the shares owned by the minority shareholders,” Solomon Kitungu, the Principal Secretary at the Ministry of Transport, said Thursday.

“We cannot make it public before we share with CMA (Capital Markets Authority) because Kenya Airways is a listed firm.”

Kenya Airways shares closed trading at Sh2.49 on Thursday compared to Sh9.65 in May 2018.

David Pkosing, the chairman of parliament’s transport committee, said Thursday MPs will seek to pass the Bill swiftly.

Mr Pkosing said the committee has set a budget of Sh800 million for purchase of the minority investors, representing a premium of 101 percent.

A consortium of local lenders, who acquired 38 percent of the company’s equity during the 2017 restructuring, could be paid through government debt, possibly in 10-year Treasury bonds, Mr Yatani said.

The lenders’ shares have a market value of Sh5.38 billion. KQ issued the banks the 38.1 percent stake to settle their claims of Sh16.9 billion.

A failed expansion drive and a slump in air travel forced the airline to restructure Sh200 billion of debt in 2017. But Kenya Airways still needed cash for fleet and route expansion amid growing competition from Ethiopian Airlines and Emirates.

Kenya wants to emulate countries like Ethiopia, which runs air transport assets – from airports to fuelling operations – under a single company, using funds from the more profitable parts to support others.

Under the Bill, Kenya Airways will become one of three subsidiaries in an Aviation Holding Company. The others will be Kenya Airports Authority, which will operate all the country’s airports including Jomo Kenyatta International Airport (JKIA) in Nairobi, under an investment arm dubbed Aviation Investment Corporation.

Nationalisation will exempt Kenya Airways from taxes on engines, maintenance and fuel, allowing it to sell cheaper tickets, Mr Pkosing said. The airline charges more than competitors, forcing price-sensitive passengers through hubs like Addis Ababa and Kigali.

The Treasury last month turned down KQ’s request for a Sh7 billion emergency bailout after its aircraft were grounded due to the restrictions on international passenger flights sparked by the coronavirus disease pandemic.

Kenya Airways needed the money to foot maintenance costs of grounded planes, pay salaries and settle utility bills like security, water and electricity.

Mr Yatani said the State was keen on a long-term solution anchored on nationalisation of Kenya Airways, arguing that the carrier’s financial troubles went beyond the Covid-related woes.

KQ sank deeper into financial red after it posted a Sh12.98 billion net loss for the year ended last December as increasing operating costs offset growth in revenues.

The airline’s performance is set to fall further in the year ending December after government and global restrictions to curb spread of Covid-19 saw it ground all flights on March 22.

The national carrier has been operating only cargo flights for essentials such as medicine but this has not been enough to sustain business given that it was already in a loss territory pre-coronavirus.